Strong Dollar Explainer
Visitors walk along a shopping street in Tokyo's Asakusa district in June. Photo: AP file
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How the strong U.S. dollar can affect everyone

53 Comments
By STAN CHOE

The buck isn’t stopping.

The value of the U.S. dollar has been on a tear for more than a year against everything from the British pound across the Atlantic to the South Korean won across the Pacific.

After rising again Friday, the dollar is near its highest level in more than two decades against a key index measuring six major currencies, including the euro and Japanese yen. Many professional investors don’t expect it to ease off anytime soon.

The dollar's rise affects nearly everyone, even those who will never leave the U.S. borders. Here’s a look at what’s driving the U.S. dollar higher and what it can mean for investors and households:

WHAT DOES IT MEAN TO SAY THE DOLLAR IS STRONGER?

Essentially that one dollar can buy more of another currency than it could before.

Consider the Japanese yen. A year ago, $1 could get a little less than 110 yen. Now, it can buy 143. That’s about 30% more and one of the biggest moves the U.S. dollar has made against another currency.

Foreign currency values are constantly shifting against each other as banks, businesses and traders buy and sell them in time zones around the world.

The U.S. Dollar index, which measures the dollar against the euro, yen and other major currencies, has climbed more than 14% this year. The gain looks even more impressive compared against other investments, most of which have had a dismal year. U.S. stocks are down more than 19%, bitcoin has more than halved and gold has lost more than 7%.

WHY IS THE DOLLAR STRENGTHENING?

Because the U.S. economy is doing better than others.

Even though inflation is high, the U.S. job market has remained remarkably solid. And other areas of the economy, such as the services sector, have been resilient.

That's helped offset worries about a slowing housing industry and other parts of the economy that do best when interest rates are low. That in turn has traders expecting the Federal Reserve to follow through on its promise to keep hiking interest rates sharply, and to hold them there a while, in hopes of knocking down the worst inflation in 40 years.

Such expectations have helped the yield of a 10-year Treasury more than double to 3.44% from roughly 1.33% a year ago.

WHO CARES ABOUT BOND YIELDS?

Investors who want to make more income off their money. And those juicier U.S. yields are drawing investors from all over the world.

Other central banks have been less aggressive than the Fed because their economies seem to be more fragile. The European Central Bank just raised its key rate by the largest amount ever, three-quarters of a percentage point. But the Fed has already raised its key rate by that amount twice this year, with a third expected this upcoming week. Some traders even say a gargantuan hike of a full percentage point could be possible, following a hotter-than-expected report on U.S. inflation Tuesday.

Partly because of that less aggressive bent, 10-year bonds across Europe and other areas of the world offer much lower yields than U.S. Treasurys, such as Germany’s 1.75% and Japan’s 0.25%. When investors from Asia and Europe buy Treasurys, they have to trade their own currencies for U.S. dollars. That pushes up the dollar's value.

A STRONG DOLLAR HELPS U.S. TOURISTS, RIGHT?

Yes. U.S. travelers in Tokyo spending 10,000 yen on dinner will be using 23% fewer dollars than a year ago for the same-priced meal.

With the dollar up sharply so far this year against everything from the Argentine peso to the Egyptian pound to the South Korean won, the dollar is going further in many countries than before.

DOES IT HELP ONLY RICH PEOPLE WHO CAN AFFORD TO TRAVEL ABROAD?

No. A stronger dollar also helps U.S. shoppers by keeping a lid on prices for imports and pushing downward on inflation.

When the dollar is rising against the euro, for example, European companies make more euros on each $1 of sales. With that cushion, they could cut the dollar price for their products and still make the same amount of euros. They could also leave the price in dollars alone and pocket the extra euros, or they could find some balance of the two.

Prices for imports fell 1% in August from a month earlier, following July's 1.5% drop, offering some relief amid the nation's high inflation. Prices for imported fruits, nuts and some peels dropped 8.7%, for example. They're down 3% from a year earlier.

A stronger dollar can keep prices in check for commodities generally. That’s because oil, gold and others are bought and sold in U.S. dollars around the world. When the dollar rises against the yen, a Japanese buyer can get fewer barrels of crude for the same number of yen as before. That can mean less upward pressure on oil prices.

SO THERE ARE ONLY WINNERS FROM A STRONG DOLLAR?

No. U.S. companies that sell abroad are seeing their profits get squeezed.

At McDonald's, revenue fell 3% during the summer from a year earlier. But if the dollar's value had simply stayed put against other currencies, the company's revenue would have been 3% higher. Microsoft, meanwhile, said changes in foreign-currency values sliced $595 million off its revenue in the latest quarter.

A string of other companies have given similar warnings recently, and further gains for the dollar could add more pressure on profits. Companies in the S&P 500 index get roughly 40% of their revenue from outside the United States, according to FactSet.

ANY OTHER COLLATERAL DAMAGE?

A strong dollar can put a financial squeeze across the developing world. Many companies and governments in such emerging markets borrow money in U.S.-dollar terms, instead of in their own currencies. When they must repay their debts in U.S. dollars, while their own currencies buy fewer dollars by the day, it can create lots of stress.

WHERE’S THE DOLLAR HEADING FROM HERE?

The dollar's biggest moves may be behind it, but many professionals expect the dollar to at least stay this high a while.

Tuesday's report on U.S. inflation shocked the market and showed it remains more stubborn than expected. That has traders upping bets for Fed rate hikes going into next year. Fed officials have been busy recently reaffirming their commitment to keeping rates high “until the job is done” in breaking the nation’s high inflation, even if it damages economic growth.

That bias toward still-higher rates by the Fed should continue to offer support for the value of the U.S. dollar.

For the dollar to weaken meaningfully, strategists wrote in a BofA Global Research report, "the Fed has to get more concerned about growth than inflation — and we are not there yet."

© Copyright 2022 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed without permission.

©2022 GPlusMedia Inc.


53 Comments
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Price can increase but vary from store to store but you can check one that have uniform price across Japan.

https://asia.nikkei.com/Economy/Inflation/Apple-hikes-prices-on-products-in-Japan-with-iPhone-13-up-19

-1 ( +4 / -5 )

Made in China iPhones get a price hike in Japan?

Go figure!

0 ( +7 / -7 )

WHY IS THE DOLLAR STRENGTHENING?

Because the U.S. economy is doing better than others.

Either this writer has absolutely no idea what they are talking about, or they are trying to make people believe something that is not true in order to help prop up the current administration.

The Yen-carry trade has been going on for decades whenever interest rates move, and now its extended to most other currencies.

Foreign entities want dollars since the US is crazily jacking up interest rates in an effort to pop its massively over-inflated bubble economy. The US economy is far from stable right now and all the signs of its getting really bad really soon are plain as day.

13 ( +23 / -10 )

If you buy products that come from abroad then it sucks. If you buy local products only, it may not be as bad, sometimes. If you invest in currencies then you are winning with the dollar/yen pair. If you get paid in dollars then it is all gravy.

2 ( +8 / -6 )

It has put a lot of money in my bank!

2 ( +6 / -4 )

Either this writer has absolutely no idea what they are talking about, or they are trying to make people believe something that is not true in order to help prop up the current administration.

The Yen-carry trade has been going on for decades whenever interest rates move, and now its extended to most other currencies.

Foreign entities want dollars since the US is crazily jacking up interest rates in an effort to pop its massively over-inflated bubble economy. The US economy is far from stable right now and all the signs of its getting really bad really soon are plain as day.

Spot on. The USD is strong because of FED's rate hikes. It's free gains basically.

However, the already botched economy and interest rates hike are already destroying real estate, auto and other markets in the US. Probably in 2023, the big crash will happen, finally. It's already confirmed that there cannot be a soft landing anymore.

People in the US are thoroughly over-leveraged with their real estate debts, car debts, student loan debts, credit card debts, etc.

Comparably, Japan is rather stable. People don't really work up a lot of debt.

Let's see how the currencies turn out after all this.

4 ( +12 / -8 )

The writer forgot to mention the main thing.

Exporters in japan are also gaining from this weak yen .That’s how it should be… more of Japanese products being exported is even better for the Japanese economy . We should get rid off Made in China products and get back using Made in Japan products which are far more better quality than China

10 ( +18 / -8 )

@Kenny

The writer forgot to mention the main thing.

Exporters in japan are also gaining from this weak yen .That’s how it should be… more of Japanese products being exported is even better for the Japanese economy . We should get rid off Made in China products and get back using Made in Japan products which are far more better quality than China

They could start by promoting the Sony Xperia!

0 ( +4 / -4 )

Investors who want to make more income off their money. And those juicier U.S. yields are drawing investors from all over the world.

Other central banks have been less aggressive than the Fed because their economies seem to be more fragile. The European Central Bank just raised its key rate by the largest amount ever, three-quarters of a percentage point. But the Fed has already raised its key rate by that amount twice this year, with a third expected this upcoming week. Some traders even say a gargantuan hike of a full percentage point could be possible, following a hotter-than-expected report on U.S. inflation Tuesday.

Partly because of that less aggressive bent, 10-year bonds across Europe and other areas of the world offer much lower yields than U.S. Treasurys, such as Germany’s 1.75% and Japan’s 0.25%. When investors from Asia and Europe buy Treasurys, they have to trade their own currencies for U.S. dollars. That pushes up the dollar's value.

Here is the rub.

This year has furnished a constant revenue stream from our US customers, in sales and investment in research and development.

1 ( +3 / -2 )

did you have checked rate of russian ruble while you wrote this "ode" about us dollar?

-1 ( +7 / -8 )

The US economy is far from stable right now and all the signs of its getting really bad really soon are plain as day.

Could of fooled me!!! I just moved back to America from Japan, business is good in America, every is normal.

I think a lot of people are wanting America to fail, but history as taught us time and time again how resilient Americans are.

-2 ( +9 / -11 )

auto and other markets

Dealerships in America are doing really well!! People are buying cars.

Most Americans are not over leveraged. It’s a common stereotype.

0 ( +9 / -9 )

A STRONG DOLLAR HELPS U.S. TOURISTS, RIGHT?

Yes. U.S. travelers in Tokyo spending 10,000 yen on dinner will be using 23% fewer dollars than a year ago for the same-priced meal.

only if tourists can get here. so far this ain't happening...

5 ( +9 / -4 )

People say negative things about America because they want to think their lives are better.

-2 ( +11 / -13 )

The writer forgot to mention the main thing.

Exporters in japan are also gaining from this weak yen .That’s how it should be… more of Japanese products being exported is even better for the Japanese economy . We should get rid off Made in China products and get back using Made in Japan products which are far more better quality than China

The writer didn't forget. JT forgot what the J stands for and added an article from the USA point of view.

1 ( +6 / -5 )

The burning question is where is Japan's line in the sand? Is it 150 or 155?

-6 ( +1 / -7 )

A similar thing happened back in the early 30’s. The Great Depression started in America, and created a “value vacuum” which ended up drawing much of the world’s gold supply to America. This caused the UK to end the gold standard, but as gold is merely a representation of value, the effect remains the same. The money supply in America fell by one-third even as the supply of gold increased. Whatever this eventually leads to, it should be a reminder to central banks that regardless of their control over their money supplies, they will never be able to regulate value.

For myself, I am paid in dollars, so I can’t complain about a strong dollar, for now.

2 ( +4 / -2 )

Sell your YEN until you still can!

-12 ( +1 / -13 )

proxyToday 08:25 am JST

The burning question is where is Japan's line in the sand? Is it 150 or 155?

It was 360 when I first came to Japan in the early '70s. I doubt the line is that far away, but it is a reference point.

As a retired US military member who also collects US social security benefits, I'm ok with the current trend. My "day job" pays in yen and equals my other income so rise or fall of the dollar doesn't really impact me, personally.

Both my sons and their wives are paid exclusively in yen. Neither have complained either way, except about fuel and food price increases which have been ongoing for at least a couple of years now.

0 ( +4 / -4 )

Food prices compared to Canada are far better still when buying fresh veggies and fruits. When I went to Canada in June, I got such a sticker shock when I went to the supermarket. Also, in Japan, they do not keep obentos sitting on the shelves and each night you can go to the market and get food marked down from 20 to 50 percent. Not in Canada, they will keep food on the shelves to nearly the expired date and then maybe mark it down. There is no Golden Country, however, prices for food are still far better here I believe because Japan imports from so many countries meat, vegetables and so on keeping food prices reasonable compared to other countries who put on real strict restrictions on imports.

3 ( +5 / -2 )

Whoever wrote this article has very little to do with economics.

Seems like nowadays anyone can be a journalist if she or he can type on the keyboard.

0 ( +6 / -6 )

The DXY is tearing it up becasue of all the terrible ponzi fiat currencies out there the dollar is the least terrible.

-6 ( +0 / -6 )

P.s. if you dont like inflation, buy bitcoin.

Downvote if you love inflation.

-13 ( +3 / -16 )

1usd some 60 ruble now was 135 march 10th

check yuan,indian rupee dera journo.there are two possibilities-or your job is to create situation that usd and usa are doing great or you are completely clueless.

"everyone" does not mean jpy and euro only.....

-5 ( +1 / -6 )

A strong USD makes imports cheaper for Americans. 

It gives Americans more of an incentive to buy from abroad, be it goods, finished products or services.

Tariffs can counter it to some extent but tariffs only create market distortions and make local industries less competitive.

A strong USD is a cloud with a silver lining.

0 ( +3 / -3 )

I am down to my last few small dollars,I will have to break a hundred dollars to purchase something

-6 ( +0 / -6 )

This looks like a melt up

-2 ( +0 / -2 )

@Eastman : actually 'everyone' does mean exactly that, as the Dollar, Euro are reserve currencies.

Walk into a dealing room. You will see USD, Euro, GBP, and AUD vs each other and their crosses quoted. Secondary currencies are CAD, KWD, SGD and TWD. China have numerous rules about their currenc (ies) which don't enable them to be traded freely in all products. The Scandinavian currencies still have a market presence and are looked at in Europe.

No one cares about the Ruble and the Indian Rupee again is so severely restricted in how it can be traded it does also get barely mentioned.

Your understandings of global markets are poor.

1 ( +4 / -3 )

It’s pros and cons of the depreciation of the yen. If you never leave Japan you will rarely feel the effect. When it’s time to travel… and you realize that your salary is squat you’d feel it. I have been seeing the prices of food going up daily at my local super market. Online shopping is crazy. Most foreigners in Japan shop online. No one buys only Japanese made products. So living here I’m affected big time.!!!

1 ( +3 / -2 )

Peerless when it comes to dreaming up ever new and improved ways to screw little people over, too big to fail Wall Street types have surpassed even themselves in touting higher interest rates as the answer to the inflationary fiat money on steroids regime they themselves instigated.

-1 ( +0 / -1 )

People in the US are thoroughly over-leveraged with their real estate debts, car debts, student loan debts, credit card debts, etc.

Comparably, Japan is rather stable. People don't really work up a lot of debt.

I agree with that. This viewpoint doesn't get much attention because of the braindead (actually ideologically-driven) comparisons between a country and a household.

If a household is in debt, like the US, this is an external debt. It must be repaid and the household must reduce consumption to do it. Household debt can also result in your home or car being taken away, further limiting your ability to be healthy, active and productive.

Japan has little household (private) debt, but massive public debt. Unlike a household, the government has a money printer and can print money to cover the debt. This is huge difference, like night and day. If the debt is external and denominated in foreign currency, yes, it can blow up when other countries demand payment in dollars or gold. That's what happens to developing countries every so often. Japan's public debt is not external or denominated in dollars. Japan also has huge foreign currency reserves.

People who compare a country with its own currency to a household are doing so because they want to stop government spending on poor people. I say poor people because austerity programs never hit the military-industrial complex and other vested interests. The line of thinking is always "we have to cut welfare due to the debt/deficit".

-1 ( +2 / -3 )

If you buy products that come from abroad then it sucks. If you buy local products only, it may not be as bad, sometimes. If you invest in currencies then you are winning with the dollar/yen pair. If you get paid in dollars then it is all gravy.

exactly, people will holiday in Japan, supporting Japanese businesses, and buy more Japanese made goods which are now relatively more competitive to their foreign imports. I see it already, Japanese pork and chicken, is now very similar in pricing to its foreign imports

2 ( +2 / -0 )

Chabbawanga...

The DXY is tearing it up becasue of all the terrible ponzi fiat currencies out there the dollar is the least terrible.

As opposed to what? Those ponzi crypto currencies? How are they doing?

-2 ( +0 / -2 )

Quite a big part is not based on economic reasons but more for psychological ones, everyone now supporting the political block leaders due to war times. Dollars and Roubles very strong, the rest rather undervalued in relation.

-2 ( +0 / -2 )

@divinda

wanna bet?

2 ( +2 / -0 )

In February 2020 59c AUD = 100 Yen today 95c AUD = 100 Yen. That 80% increase in the AUD compared to the Yen over 30 months. Now that excellent profit if you were on it.

-1 ( +0 / -1 )

It's just silly to say the U.S economy is doing badly. You may not like the distribution of wealth (nor do I), but the economy itself is the strongest in the world.

Japan, on the other hand... well, something seemed to happen back in the 90s that never quite got fixed...

-2 ( +2 / -4 )

Exporters in japan are also gaining from this weak yen .That’s how it should be… more of Japanese products being exported is even better for the Japanese economy . We should get rid off Made in China products and get back using Made in Japan products which are far more better quality than China

Yes, get those over 75s into the factory now.

-2 ( +1 / -3 )

The dollar is strong because, money are flowing from all over the world into USA because the Feds is raising interest rates. More are coming from Europe because of the war, inept leaders and energy cost instability.

4 ( +4 / -0 )

@ awa no gaijin:

30% is a far cry from everybody and has absolutely nothing to do with exchange rates.

1 ( +1 / -0 )

The Yen-carry trade has been going on for decades whenever interest rates move, and now its extended to most other currencies.

That was the old days but the depreciation of Yen has ended it.

Exporters in japan are also gaining from this weak yen .That’s how it should be… more of Japanese products being exported is even better for the Japanese economy . We should get rid off Made in China products and get back using Made in Japan products which are far more better quality than China

Do you actually read Yahoo News at all? 9/10 of articles on the same topic have Japanese businesses complaining about how the weak Yen is destroying their businesses. The weak Yen is good for big corporations to pay down their Yen-based debts but a little gain for disposable incomes (except for Yen).

Rising prices due to a weak Yen will kill the imports that are needed for manufacturing. Japan is entirely reliant on importing resources, food, and everything else.

A strong USD makes imports cheaper for Americans. 

Meanwhile, the prices of everything will rise. USD-based disposable incomes are barely rising as Americans increasingly have less money for saving. US corporations are cutting jobs and lowering expansions, and Big Tech recently started doing it.

Yes, get those over 75s into the factory now.

It is just impossible at this point unless Japan allowed Chinese and Vietnamese immigrants to go to Japan in massive numbers to fill those factories. Again, it is not possible because Japanese xenophobes are aggressive and factories in Japan are unprofitable/unsustainable.

-6 ( +0 / -6 )

@davinda

Foreign entities want dollars since the US is crazily jacking up interest rates in an effort to pop its massively over-inflated bubble economy

The US's real interest rate is negative 2.6%. If there's anything "crazy" about that, it's too low. A "bubble" of what? Not asset prices, as stock and real estate prices have steadily been coming down.

The Yen-carry trade has been going on for decades whenever interest rates move, and now its extended to most other currencies.

I'm not sure how that relates to this article on the US's real economy, only that it tells us more about Japan's monetary policy than the US's.

This writer has absolutely no idea what they are talking about...

Um...OK.

1 ( +1 / -0 )

The Residents,you can spend a dollar in most every country in the world,with any problem,it so valued

-2 ( +0 / -2 )

@Michael Machida I agree thinking is totally different from reality!!

People say negative things about America because they want to think their lives are better. I agree with also with the thought that a smart man would invest his money where he can get gains, no one wants to take a loss. This is why investors are flocking to the US.

-1 ( +0 / -1 )

For most Americans the strong dollar isn't noticed. It doesn't show up in paychecks.

Prices already rose 10-30% in America and those won't be going down nearly as fast, if ever. The companies that do business overseas will notice, but only if their contracts are in local currency. Any savings will be retained.

My small company contracts are written so USD is the currency used. We are small enough that overseas clients do it.

Business and life is back to normal in the US. Travel is picking up too. Saw reasonable airfares to Tokyo from 2 airlines last week from SEA and PDX.

0 ( +1 / -1 )

You Japanese American,are rituals in counting our money,we seperate the bill by value, a hundred dollar bill is the biggest ,it would get priority over a 50 ,then a 20,10,5,1 dollar ,here is the proper way American money Google How American Count Money

-2 ( +0 / -2 )

People still complaining about America not getting a fair deal when America's economy is 5 times bigger then Japan!

1985 when Japan was forced by USA to signed the Plaza Accord, that has affected Japan's economy, stagnation for the past 3 decades. We're still dealing with the consequences of that disaster that was pushed on Japan.

-2 ( +1 / -3 )

People say negative things about America because they want to think their lives are better.

Spot on!

-2 ( +3 / -5 )

Just wait how strong the dollar will be when Putin shuts off the gas supply in Europe this winter.

-2 ( +1 / -3 )

@ReasonWisdom

We're still dealing with the consequences of that disaster that was pushed on Japan.... stagnation for the past 3 decades

The Plaza accord was between the US, France, UK, Germany and Japan, in which all agreed to take part. It was done because the US was spearheading an effort at home to rid the world of runaway inflation and its economy was suffering as a result. After the accord, inflation fell and the global economy prospered.

None of the other countries involved suffered a bubble or stagnation afterward -- only Japan. That was because of Japan's own domestic monetary policies. social conditions and rampant speculation by Japanese investors in the stock market and real estate. Indeed, Japan continued to be a very strong exporter afterward regardless of the yen's value.

1 ( +2 / -1 )

When I first arrived here the exchange rate was ¥160/$.

0 ( +1 / -1 )

Just wait how strong the dollar will be when Putin shuts off the gas supply in Europe this winter.

It is already shut off. Europe is going to source gas their gas elsewhere. Spain signed contracts for gas from North Africa and there is gas coming via pipeline from Azerbaijan across Turkey to Greece and onward to the rest of Europe. The US is ramping up shipments of CNG from the Gulf Coast to Europe and two floating gas liquification and loading facilities are in the planning/permitting process in the gulf. If the Israelis can sort out their maritime borders with Lebanon there will Israeli gas flowing to Europe.

0 ( +0 / -0 )

Something else to consider. The high dollar also means the Chinese Yuen is falling in value. That makes Chinese exports cheaper, but also acts to drive down the prices of goods sold by the nations bordering China, harming the profitability of their companies.

0 ( +0 / -0 )

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